Banks, credit unions face tough fight on swipe fees

Banks and credit unions face an uphill battle to defeat legislation that would limit debit card fees paid by merchants.

As part of the 1,500-page effort to overhaul Wall Street regulations, the Senate adopted a seven-page amendment with major implications for debit card issuers, merchants and consumers. The legislation aims to limit fees paid by merchants to debit card issuers. 

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The provision was not part of legislation that passed the House in December after a year of committee and floor debate. It is now up to a conference between the House and the Senate to decide whether the language remains part of the final bill.

Senate Majority Whip Dick Durbin (D-Ill.) was the main sponsor of the amendment, which passed on a 64-33 vote, with 17 Republicans in support and 10 Democrats opposed. The Durbin language requires the Federal Reserve to set “reasonable and proportional” debit interchange fees for institutions with $10 billion or more in assets.

Rep. Peter Welch (D-Vt.) is pushing hard for the language to remain in the final Wall Street bill that Democrats vow to send to President Barack Obama’s desk by the July 4 recess.

“The strong Senate vote just gives us a huge boost in the House,” said Welch, adding that he was going to speak with House Financial Services Committee Chairman Barney Frank (D-Mass.) about including the language in the conference. “I’m going to urge leadership and my colleagues to include the Senate language.” 

Welch and Reps. Bill Shuster (R-Pa.), Chris Carney (D-Pa.), Walter Jones (R-N.C.), Steve Kagen (D-Wis.), Keith Ellison (D-Minn.) and John Hall (D-N.Y.) on Tuesday called on the Democratic and Republican leadership to support the swipe fee provision.

Frank declined last week to express his views on the Senate provision. He said the interchange-fee issue is a concern between businesses and would not fall under the jurisdiction of a new consumer financial protection regulator that is included in the bill.

“Interchange would never have been its jurisdiction. It only deals with consumers. Interchange is business-to-business, although people argue it would have a consumer effect,” Frank said last Tuesday. “I’m not in charge of the Senate. It would be a better world if I was. We want to get a bill done. It’s very close in a lot of ways. But we’re going to have a conference.”

Lawmakers are not sure whether the debit-fee issue would have passed the House had it come up for a vote. 

“I think it would pass, but I’m not certain of that,” said Rep. Brad Miller (D-N.C.).

Rep. Mike McMahon (D-N.Y.), a centrist freshman from New York City, said Tuesday that he is opposed to the provision and does not believe it should be part of the Wall Street overhaul bill.

“We really haven’t had the time to examine it and look at it as thoughtfully as we would like to. This could prove to be an unnecessary road bump on the road to an approval of a reasonable and effective financial reform bill by July 4,” McMahon told The Hill. “I think we should take it out of this broader discussion of doing sweeping broader regulation.”

Rep. Gregory Meeks (D-N.Y.) said: “Based upon what I have seen, I don’t think it is a good idea for the Durbin amendment to be in because government should not be involved unless there is a benefit to consumers. Right now, we don’t see a benefit to consumers.” 

The interchange-fee issue has been a long-running battle between merchants and retailers on one hand and banks and credit unions on the other. The Merchant Payments Coalition has squared off with the Electronic Payments Coalition in a multimillion-dollar lobbying fight that has raged in recent years.

The National Retail Federation, National Association of Convenience Stores and Retail Industry Leaders Association argue the legislation would benefit consumers.

Banks and credit unions say the legislation helps big-box retailers, not smaller retailers, and that the provision is unfairly portrayed as a consumer issue. Some bank analysts, including Scott Valentin of FBR Capital Markets, expect little of the cost savings to be passed on to consumers.

After losing the fight in the Senate, banks and credit unions are ramping up the pressure.

“We’re not going to hold anything back,” said Ryan Donovan, vice president at the Credit Union National Association (CUNA).

CUNA is planning grassroots efforts, with credit union members meeting with lawmakers during the Memorial Day recess, possibly during town hall meetings. The Independent Community Bankers of America (ICBA) argues the $10 billion threshold really does not benefit its members. 

Small banks and credit unions say it is unlikely a two-tiered system for bigger and small institutions would remain, and that they too would eventually be subject to the Fed rules.

“We’re going to continue to make our point that a carve-out, while well-intended, does not work for community banks,” said Jason Kratovil, vice president at ICBA.

Banks and credit unions say they have a chance to remove the provision because it was not part of the House legislation.

“We believe Frank is very pragmatic on business-to-business contractual issues and recognizes that the last-minute interchange amendment is an attempt by the big-box stores and giant retailers to make even more money off the backs of consumers and small financial institutions on Main Street,” said Dan Berger, executive vice president at the National Association of Federal Credit Unions (NAFCU). “Since this provision is not in the House bill, we feel there is an opportunity for substantial changes in conference.”